Inflation

The Federal Reserve of United States has raised short term benchmark interest rates for the third time this year. With this increase, the benchmark rates have crossed the 2 percent mark for the first time since 2008. The FED has also given enough indications to suggest that there might be one more rate hike in December followed by a few more next year. As job growth figures in USA are pointing towards historically low unemployment levels, and the GDP growth rate is expected to be more than 3 percent this year, the FED is gradually moving away from the accommodative…

Newspaper headlines over the last few days have highlighted three facts which point to the current abysmal state of the Indian economy. The first relates to inflation, where the June 2018 wholesale price index was 5.77 percent above that of June last year; this is the highest inflation rate witnessed since December 2013. The second is a burgeoning trade deficit: the trade deficit in June, at $ 16.6 billion, was again the highest for any month in the last five years. The third relates to the industrial stagnation that has set in: the growth in factory output in May (the…

News that the US economy grew at 3 per cent during the hurricane-blighted third quarter of 2017, close to the 3.1 per cent recorded in the previous quarter, has once more revived claims that the world economy has left the Great Recession behind. There is one reason to discount this claim. Back to back 3 per cent annualized rates of growth in consecutive quarters has been observed more than once since the 2008 crisis. In fact, as recently as the second and third quarters of 2014, rates of GDP growth in the US stood at 4.6 and 5.2 per cent…

The dilution of government intervention in the form of minimum support prices, procurement and public distribution is undermining the medium-term viability of agricultural production in India. crisis_in_agriculture (Download the full text in PDF format) (This article was originally published in the Business Line on October 23, 2017.)

The BJP government, like a bull in a China shop, is wrecking the economy. A neo-liberal regime, even at the best of times, i.e. even when the economy is booming, brings misery to the vast mass of the working people by imposing upon the petty production sector a process of primitive accumulation of capital, through a withdrawal of State support from it and through leaving it to the mercy of the “spontaneous” working of untrammelled capitalism. When the economy slows down,with the inevitable collapse of booms which are typically sustained in such a regime by asset-price bubbles, the misery of…

On August 9, RBI Governor Raghuram Rajan released the last bi-monthly monetary policy statement that would be drafted under his leadership. No changes were made: the benchmark ‘repo’ rate was kept at 6.5 per cent, the cash reserve ratio at 4 per cent and the Statutory Liquidity Ratio at 21.5 per cent. According to the RBI, growth in this fiscal is projected at 7.6 per cent because of the beneficial effects of the good monsoon and the expansionary effects of the implementation of the 7th Pay Commissions recommendations. So growth is not an immediate problem. But, in the view of…

The return of inflation, even if moderate, at a time when India is experiencing a normal monsoon and after a long period of inflation-targeted monetary policy is surprising. Unexpected_Inflation (Download the full text in PDF format) (This article was originally published in the Business Line on August 29, 2016.)

On February 4, after meetings held at Dubai for security reasons, an IMF team arrived at an agreement with officials from Islamabad, which would permit the release of the last-but-one tranche of $497 million out of an SDR 4.393 billion billion loan package (around $6.64 billion in exchange rates prevailing at time of sanction) under its Extended Finance Facility (EFF). The agreement came after the 10th review of economic performance and policy undertaken as part of the 3-year arrangement approved by the IMF Executive Board in September 2013. The IMF in its press release has chosen to be complimentary. Besides…

In a curious shift in perception, low and falling crude oil prices are increasingly being viewed as a disadvantage rather than a benefit to the global economy. The spot price of Brent crude has fallen from just above $100 a barrel at the beginning of September 2014 to around $27 a barrel in mid-January 2016—a close to 75 per cent collapse over a 17-month period. The decline is giving rise to jitters on what it would do to an already sluggish global economy. That marks a shift, since initially the downturn in oil prices, which had been fluctuating in the…

The world capitalist economy has been mired in stagnation and high unemployment ever since the 2008 financial crisis. Many were predicting that a turnaround was about to occur, partly because of the fact that the U.S. economy last month showed larger job creation than of late, and also because it had grown at 3.5 percent last quarter which is higher than for some time now. But, far from recovering, the world capitalist economy now appears to be sliding into a new downturn. A recession is defined to be a situation where an economy fails to grow for two successive quarters,…